Opinion
Index No. 653266/2020 Motion Seq. No. 001
01-05-2023
MAGNETIC PARTS TRADING LIMITED Plaintiff, v. NATIONAL AIR CARGO GROUP, INC., Defendant.
Unpublished Opinion
Motion Date 10/05/2022
DECISION + ORDER ON MOTION
HON. ROBERT R. REED, JUDGE
The following e-filed documents, listed by NYSCEF document number (Motion 001) 20, 21, 22, 23, 24, 25, 27, 28, 29, 30, 31, 32, 33, 34, 35 were read on this motion to/for LEAVE TO FILE
On this motion, defendant National Air Cargo Group, Inc. d/b/a National Airlines moves for leave to amend its answer to assert counterclaims against plaintiff Magnetic Parts Trading Limited. Plaintiff opposes the motion and cross-moves for the imposition of sanctions pursuant to Rules of the Chief Administrator of the Courts (22 NYCRR) § 130-1.1.
BACKGROUND
Plaintiff, as lessor, and defendant, as lessee, entered into a written lease (the Lease), which incorporated the terms of the "International Air Transport Association Master Short-Term Engine Lease Agreement, December 1, 2002 Revision," for one Rolls-Royce Model RB211-535E4-B-37/23D aircraft engine and one Part No. CP30501/08 shipping stand for a term ending on February 25, 2020 (NYSCEF doc no. 4, complaint, ¶¶ 6-7). Pursuant to the lease, defendant agreed to pay plaintiff a $150,000 deposit and a $60,000 fee each month (id., ¶ 8). The lease required defendant to pay for engine repairs and maintenance caused by its negligence, operational mishandling, and operation of the engine beyond limits and/or foreign objects during the lease term (id., ¶ 12). The lease also required defendant to redeliver the engine in good operating and physical condition, normal wear and tear excepted, with all parts and with the same external configuration, to plaintiff at the close of the lease term, together with a valid serviceability tag issued by the U.S. Federal Aviation Administration or the European Joint Airworthiness Authority (id., ¶¶ 9-10). If the engine were to be "unserviceable" at the time of redelivery, defendant agreed to pay plaintiff daily rent until the date the engine was no longer unserviceable (id., ¶ 13). If defendant failed to redeliver the engine in the condition described above, the lease provides that the lease term is automatically extended to such date defendant complies (id., ¶ 14). During this extended period, defendant would be prohibited from using the engine in its flight operations (id.).
In January 2020, defendant notified plaintiff that it did not intend to re-lease the engine (id., ¶ 18). When defendant failed to redeliver the engine, plaintiff informed defendant that the lease term was automatically extended and continued to charge defendant a monthly fee (id., ¶¶ 19-20). A final inspection of the engine was scheduled thereafter, and at that final inspection, numerous defects were revealed. Plaintiff claims the defects, including corrosion on the fan case, were caused by defendant, which rendered the engine unserviceable (id., ¶¶ 21-24). Defendant had also removed the engine from its aircraft without informing plaintiff and failed to provide plaintiff with certain records (id, ¶ 22). Plaintiff alleges that defendant defaulted on the lease by: (1) failing to redeliver the engine in the condition required under the lease, (2) pay daily rent, and (3) pay for repairs to the engine (id., ¶¶ 25-27). Plaintiff later learned that defendant had misplaced the shipping stand (id., ¶ 31).
Plaintiff commenced this action by filing a summons with notice on July 21, 2020 (NYSCEF doc no. 1). The complaint filed September 22, 2020, pleads causes of action for breach of the lease, unjust enrichment and an account stated. Defendant interposed seven affirmative defenses in its answer.
Defendant now moves to amend its answer to assert two counterclaims for breach of contract and for breach of the covenant of good faith and fair dealing, on the ground that plaintiff had prior knowledge of pre-existing corrosion problems with the Rolls-Royce engines. Submitted in support of the motion is a proposed amended answer with counterclaims and excerpts from the deposition of defendant's corporate representative, Todd Johnson (Johnson), held May 19, 2022. Johnson testified that Rolls-Royce had notified defendant that corrosion was "a known problem with mature engines" (NYSCEF doc o. 24, Robert J. Hantman [Hantman] affirmation, Ex 2 at 125). Johnson also testified that replacement of the engine's fan case was beyond defendant's responsibilities under the Lease (id. at 190).
Plaintiff argues that the motion should be denied as defendant waited more than two years after it served its answer to assert the proposed counterclaims and one month after plaintiff had completed depositions of defendant's witnesses. Because the scheduling order dated May 2, 2022 directs that nonparty and fact depositions shall be completed by October 1, 2022 (NYSCEF doc no. 19), plaintiff asserts that it will suffer significant prejudice absent an extension of time to complete discovery if the amendment is granted. Plaintiff also argues that the proposed counterclaims are without merit. It cross-moves for sanctions, including the recovery of its expenses and attorneys' fees, against defendant. If the court were to grant the motion, plaintiff also seeks to recover the costs and fees it will incur in re-deposing defendant's witnesses.
DISCUSSION
While defendant seeks leave to amend under CPLR 3019, that statute governs counterclaims, generally. The correct statute under which relief may be granted is CPLR 3025.
It is well settled that "leave to amend a pleading should be freely granted in the absence of prejudice to the nonmoving party where the amendment is not patently lacking in merit" (Davis v South Nassau Communities Hosp., 26 N.Y.3d 563, 580 [2015] [citation omitted]). "[A] party opposing leave to amend 'must overcome a heavy presumption of validity in favor of [permitting amendment]'" (McGhee v Odell, 96 A.D.3d 449, 450 [1st Dept 2012] [internal citation omitted]), by demonstrating prejudice or surprise or that the proposed amendment is palpably insufficient or patently devoid of merit (MBIA Ins. Corp, v Greystone &Co., Inc., 74 A.D.3d 499, 499 [1st Dept 2010]).
Plaintiffs argument that the amendment should be denied because of undue delay is unpersuasive. Here, plaintiff argues that defendant waited more than two years after filing its answer to move for relief, but mere lateness is insufficient to warrant denial for leave to amend. A showing of 'lateness' must be coupled with significant prejudice to the other side to warrant relief (Ede nw aid Contracting Co. v City of New York, 60 N.Y.2d 957, 959 [1983] [citation omitted]).
Prejudice exists where a party "has been hindered in the preparation of [its] case or has been prevented from taking some measure in support of [its] position" (Loomis v Civetta Corinno Constr. Corp., 54 N.Y.2d 18, 23 [1981]). Here, neither party is precluded from seeking additional time to complete discovery. Plaintiff has not demonstrated having suffered any operative prejudice. Furthermore, defendant's two-year delay is not so significant as to warrant denial of the motion (see Cherebin v Empress Ambulance Serv., Inc., 43 A.D.3d 364, 365 [1st Dept 2007] [granting leave to amend based on a "short" delay of three years after the alleged medical malpractice]).
Turning to the proposed counterclaims, the party moving for the amendment need not establish the merit of the claim, only that the proposed amendment is not palpably insufficient or clearly devoid of merit (Agbo v Constantin Assoc., LLP, 204 A.D.3d 599 [1st Dept 2022]). Defendant has met its burden on the proposed first counterclaim.
To state a cause of action for breach of contract, the plaintiff must plead the existence of a valid and enforceable contract, the plaintiff's performance, the defendant's breach, and damages (Harris v Seward Park Hous. Corp., 79 A.D.3d 425, [1st Dept 2010]). According to the proposed amended answer, defendant alleges that corrosion of the fan case was a known issue and would have required an "off-wing engine repair" that is not considered a "routine-scheduled, condition monitored or on-condition line maintenance" (NYSCEF doc no. 23, Hantman affirmation, Ex A, ¶¶ 87-89). Defendant relies on Section 4.6.1 (i) of the Lease, the relevant part of which limits defendant's maintenance obligations to "routine scheduled, condition-monitored, and on-condition line maintenance" (id., ¶ 92). Section 12 of the Lease provides that in the event the engine becomes unserviceable, then defendant is obligated to return the engine to plaintiff. Because the corrosion on the fan case constitutes normal wear and tear, defendant claims that it was under no obligation to correct the condition as doing so would contravene section 4.6.3 of the Lease, which prohibits modification, alteration, overhaul, or repair of the engine except to the extent agreed to by the parties (id., ¶ 98). Defendant further alleges that plaintiff refused to cover the cost of replacing the fan case (id., ¶ 86), even though plaintiff collected "Use Fees" of approximately $150,000 which were to be used "to rectify an Engine that is returned unserviceable due to normal wear and tear" (id, ¶¶ 101-102). Additionally, defendant claims that it offered to redeliver the engine in its current condition, but plaintiff failed to provide it with a redelivery location (id., ¶ 99). The proposed first counterclaim alleges that plaintiff breached the lease by refusing to designate a redelivery location, which caused defendant to lose revenue because of the unserviceability of the engine and failed to apply the Use Fees plaintiff had collected to cover the repair and maintenance costs (id., ¶¶ 108). This is sufficient to state a cause of action for breach of contract.
Plaintiff, in reply, maintains that defendant waived its right to seek incidental and consequential damages under Section 5 of the Lease. Section 5 (ii) reads as follows:
"Lessee waives all rights, remedies and damages, including incidental and consequential damages, express or implied, arising by law or otherwise, with regard to the engine package, and lessor in that capacity (and, for the avoidance of doubt, its insurers) shall have no liability therefor.
Nothing in 5(ii) shall affect the legal liability of lessor, if any, under law arising from its willful misconduct or gross negligence provided that neither the terms of this agreement nor lessor's capacity hereunder shall itself expand any such liability"(NYSCEF Doc No. 5, complaint, Ex A at 34).
Plaintiff alleges that defendant cannot establish either willful misconduct or gross negligence on plaintiffs part because defendant had been in possession of the subject engine for several years before plaintiff acquired title to it. Because defendant was responsible for its care and maintenance during that time, defendant would have superior knowledge about the engine's condition.
However, plaintiff, in asserting the applicability of Section 5 of the lease, omits the prefatory language in that section, which states, in part, "[w]ithout prejudice to 2.2.2, 2.3, 9 OR 12" (id.). Section 12, titled "Unserviceability,' states, in part:
"12.1 Return of Engine
If the Engine becomes Unserviceable, Lessee shall promptly redeliver the Engine Package in accordance with 11.1 and 11.5 save where:
(i) Lessee is required to procure the repair of the Engine under the last clause of 4.6.3',
(ii) Lessee promptly takes the action permitted by 4.7.2(ii)(a); or
(iii) 7.2.1(H)(a) applies, and the Engine is delivered to the Agreed Maintenance Performer to repair a Partial Loss"(id. at 39).
Section 4.6.3 of the lease provides that "[l]essee shall not perform or permit any modification, alteration, overhaul or repair (save as required by 4.6.1) of any Engine Package, save to the extent and under the terms agreed between the Parties" (id. at 33). Defendant asserts that Section 4.6.3 prohibited it from performing an overhaul of the engine (NYSCEF doc no. 23, ¶ 98), and that plaintiff "was not willing to cover the costs of replacing the fan case" (id., ¶ 86). Thus, if Section 12 of the lease is applicable, defendant has not waived its rights, remedies and relief under the lease.
Plaintiff also argues that defendant's witnesses testified that the aircraft on which the engine was installed was grounded in December 2019 on an unrelated issue regarding a different engine leased to defendant from a different lessor (NYSCEF doc no. 30, Daniel C. Green [Green] affirmation, Ex A at 77 and 116-118). Additionally, plaintiff complains that defendant delayed notifying it of the issue with the fan case and unilaterally decided to remove the engine from its aircraft (id. at 140-141 and 151-152). This testimony, however, does not render defendant's allegation that plaintiff failed to apply the Use Fees to repair the subject engine or whether such repair fell outside the scope of defendant's obligations, particularly where plaintiff has alleged that the lease term was extended until defendant redelivered the engine in full compliance with Sections 11.1 and 11.5 of the Lease (NYSCEF doc no. 4, ¶ 14).
Here, plaintiff fails to satisfy its burden of demonstrating that "the facts alleged and relied upon in the moving papers are obviously unreliable or insufficient to support the amendment" on the breach of contract counterclaim (Peach Parking Corp, v 346 W. 40th St., LLC, 42 A.D.3d 82, 86 [1st Dept 2007]). Accordingly, leave to plead a first proposed counterclaim for breach of contract is granted.
The proposed second counterclaim pleads a cause of action for breach of the implied covenant of good faith and fair dealing. "Implicit in all contracts is a covenant of good faith and fair dealing in the course of contract performance" (Dalton v Educational Testing Serv., 87 N.Y.2d 384, 389 [1995]). This covenant "embraces a pledge that 'neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract'" (id. [citation omitted]). Here, the proposed amended answer alleges that plaintiff failed to apply the Use Fees to return the engine to serviceability and then sued to recover additional payments (NYSCEF Doc No. 23, ¶ 113). This counterclaim is duplicative of the proposed breach of contract counterclaim as it relies upon the same facts (see 320 W. 115 Realty LLC v All Bldg. Constr. Corp., 194 A.D.3d 511, 512 [1st Dept 2021]; Vue Mgt., Inc. v Photo Assoc., 81 A.D.3d 569, 569 [1st Dept 2011] [denying a motion to amend the complaint where the proposed fraud claim was duplicative of the breach of contract claim]). To the extent defendant alleges that plaintiff made false allegations against it by commencing the present action (NYSCEF Doc No. 23, ¶ 114), defendant has not adequately pled how the making of false allegations constitutes a breach of the implied covenant of good faith and fair dealing.
In view of the foregoing, plaintiffs cross motion for sanctions under 22 NYCRR § 1301.1 for defendant's allegedly frivolous conduct is denied. The part of the cross motion seeking fees and costs in the event plaintiff conducts additional discovery on the proposed first counterclaim is also denied (see Tri-Tec Design, Inc. v Zatek Corp., 123 A.D.3d 420, 420 [1st Dept 2014]).
Accordingly, it is hereby
ORDERED that the motion of defendant National Air Cargo Group, Inc. d/b/a National Airlines for leave to serve an amended answer with counterclaims (motion sequence no. 001) is granted to the extent that defendant may amend its answer to plead a first counterclaim for breach of contract only, and the balance of the motion is otherwise denied; and it is further
ORDERED that, within 30 days after service of this order with written notice of entry, defendant National Air Cargo Group, Inc. d/b/a National Airlines shall serve and file an amended answer with counterclaim in the form submitted on the motion as Exhibit A (NYSCEF doc no. 23); and it is further
ORDERED that plaintiff Magnetic Parts Trading Limited shall respond to the amended answer with counterclaim within 30 days after service of the amended answer with counterclaim upon it; and it is further
ORDERED that the cross motion of plaintiff Magnetic Parts Trading Limited for the imposition of monetary sanctions or to recover its costs and fees associated with conducting discovery on the proposed first counterclaim is denied.